Q. Can a taxpayer claim the first-time homebuyer credit if the purchase is pursuant to a seller financing arrangement (for example, a contract for deed, installment land sale contract, or long-term land contract), and the seller retains legal title to secure the taxpayer's payment obligations?
A. If the taxpayer obtains the "benefits and burdens" of ownership of a residence in a seller financing arrangement, then the taxpayer can claim the credit even though the seller retains legal title. Factors that indicate that a taxpayer has the benefits and burdens of ownership include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property. (7/2/09)
There are other useful answers on this page as well
I'm going to disagree with one of the answers a bit. If, the land contract is "recorded" with the local County/andor/ Township which effectively puts the property in your name, you will be able to claim the tax credit.
Whether the land contract is recorded or not is something you'd negotiate with the Seller--as a piece of advice you should absolutely require it to be recorded anyways--recording is what lets all in the world know you have rightful claim/interest in that property--an unrecorded land contract gives you an interest in the property but no "priority" to it. Which means, the seller can do a bunch of things that coud put liens on the home or give other people rights that are superior/higher in claim to yours.
AS with any land contract, or tax question better to talk to a licensed attorney in your area to be sure--I've practiced in the past, but to say I'm rusty would be like saying oceans are wet .
Recording such transactions is most certainly advised!
The purchase must actually occur in the time frame specified in the tax bill. So it doesn't work for lease-options, rent-to-owns, etc. Nor for land contracts when the original owner still holds the deed. Go back to the buyer and ask to buy with owner financing.
And here's a tip: Figure out (with an accountant, as appropriate) how much the tax credit will actually put in your pocket. Let's say the full $8,000. Offer to share a portion of that with the seller when you receive it. For instance, the two of you might agree that you'll pay him an extra $2,000 upon receipt of your $8,000. Check with a lawyer or accountant, but I suspect you could do that as a separate (apart from the mortgage) unsecured (or secured) note. That way, the seller is more likely to go with a sale with owner financing now, and you'll receive most of the benefits of the tax credit.
I'm not recommending this when you're using outside financing--there could be all sorts of legal and other problems with a "side" deal the lender wouldn't know about. But when it's just between you and the seller, and you're both fully aware of the arrangement and agree to it, it should be OK. But check with a lawyer in any case.
Hope that helps.